Executive Officers of a Corporation and Premium Calculation
Many small companies doing business as a corporation are confused about the guidelines established by the California Workers’ Compensation Insurance Rating Bureau regarding Executive Officers. “Executive Officers” means those officers of a corporation or limited liability company commonly known as President, Vice President, Secretary, and Treasurer.
I’ve seen the following situation occur with small corporations that also employ family members: The owner of the corporation will declare a family member an Executive Officer of the corporation, while retaining 100% of the ownership of the corporation. One reason for this declaration is the desire of the owner to exclude this person from coverage and avoid paying an additional premium. The point that is most often misunderstood is this: in order for an individual to be excluded from coverage, they must be a stockholder of the corporation and be named an Executive Officer of the corporation. When they fail to meet both guidelines, that employee’s entire remuneration shall be used as the payroll during that policy period.
Additional confusion comes into play when the individual listed as an Executive Officer is also a part-time employee (this will often be the spouse of the owner of the corporation). In developing the annual premium, the Executive Officers of a corporation are subject to a minimum remuneration of $39,000 per policy year and a maximum remuneration of $101,000 per policy year. When the part-time executive officer earns a small salary — or less than $39,000 a year — at final policy audit, that individual will be charged using the minimum remuneration of $39,000. In my experience, this additional charge of payroll often goes unnoticed by some business owners when it is billed and collected at final audit.
Though there may be other benefits to listing an individual or family member as an executive officer to a corporation, remember that the California Workers’ Compensation Insurance Rating Bureau has established clear rules for the collection of premium. Also remember to review all final audits for accuracy.